Value Added Tax (VAT) in the UAE

Value Added Tax (VAT) in the UAE

Scritto da MP

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Categorie: Events

Pubblicato il June 27, 2023

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  • What is VAT?
  • VAT for Business
  • Zero-Rated Sectors

 

The Valued Added Tax (VAT) was introduced in the United Arab Emirates back in 2018. It is part of the different UAE taxes imposed by the government and depends on the consumption of services and goods at every point of the supply chain in the country. VAT is an effective way for registered businesses to act as tax collectors on behalf of the Federal Tax Authority (FTA), with the end consumer ultimately bearing the VAT cost.

If you are new to the UAE and are unaware of how VAT works, read on to find out how it can affect you and whether you are eligible for refunds.

WHAT IS VALUE ADDED TAX?

vat magnified

 

 

 

 

VAT in the UAE is a type of indirect tax

Local governments implement taxes to generate revenue for public services such as hospitals, transportation and security. While there are different taxes, they can broadly be classified into two categories: direct taxes collected by the government and indirect taxes collected by an intermediary (like a retail store) on the government’s behalf.

Valued Added Tax, also referred to as a general consumption tax, is an indirect tax imposed on most services or products sold or purchased. VAT’s standard rate in the UAE is 5%, and it is the responsibility of the Federal Tax Authority to conduct audits and implement and ensure the collection of the tax.

 

VAT REGISTRATION FOR BUSINESSES

As per the UAE VAT law, Value Added Tax applies to businesses operating in the UAE provided that certain conditions are met. According to the UAE government:

  • Businesses with a yearly turnover exceeding AED 375k on taxable imports and supplies are required to register for VAT.
  • Businesses that have a yearly turnover above AED 187.5k and under AED 375k have the option to register for VAT.

A business pays the government with the tax it collects from customers. Consequently, it also receives a refund from the government on the tax that is paid to suppliers.

Wondering how to register for VAT in the UAE? If you want to set up a venture in the country, learn how to register your business for VAT in the UAE.

 

HOW CAN BUSINESSES REGISTER FOR VAT?

Business can use the e-service section on the website of the FTA to register for VAT. For this, an online account needs to be created on the website.

 

WHAT BUSINESSES CAN LEVY VAT?

The Value Added Tax applies to tax-registered businesses managed on the country’s mainland and in the free zones. However, if a free zone is a “designated zone” by the UAE cabinet, it must be considered outside the UAE for tax purposes. The transfer of goods is tax-free between designated zones.

  • VAT-registered businesses are required to charge VAT on supplied taxable services or goods.
  • They can reclaim any VAT paid to services or goods related to business.
  • These businesses must relevant records to allow the government to check if everything is in order.

VAT FILING IN THE UAE

Tax-registered businesses or “taxable persons” must submit a VAT return to the Federal Tax Authority at the end of each tax period.

A VAT return shows an individual’s VAT liability by summarising the value of the purchases or supplies he has made during the mentioned period.

 

WHAT IS VAT LIABILITY?

VAT liability is the difference between the input tax recoverable or VAT incurred on purchases and the output tax payable, or the VAT charged on the supply of services and goods.

If the input tax amount is less than the output tax, businesses must pay the difference to the FTA. If the output tax is less than the input tax, the taxable entity will be entitled to recover the excess input tax.

All tax-registered businesses in the UAE must record financial transactions and ensure their financial records are updated and accurate to avoid legal problems.

 

WHEN MUST BUSINESSES FILE TAX RETURNS?

Taxable businesses have to file VAT returns with the FTA within 28 days of the tax period. This is how the tax periods are organised:

  • On a monthly basis for businesses that have annual revenue of around AED 150 million or more.
  • On a quarterly basis for businesses that have annual revenue below AED 150 million.

 

ZERO-RATED SECTORS

The FTA has revealed sectors that are assigned zero-rated tax. VAT is charged at 0% on the following supply categories:

  • International transportation and supplies.
  • Supply of certain healthcare services in addition to relevant services and goods.
  • Export of services and goods outside the Gulf Cooperation Council (GCC).
  • Certain education services with relevant services and goods.
  • New residential properties within three years of construction.
  • Certain precious investments like silver and gold.
  • Supply of certain types of land or sea transportation like ships and aircrafts.

 

WHICH SECTORS QUALIFY FOR VAT EXEMPTION IN THE UAE?

calculating home vat

 

 

 

 

Certain real estate transactions are exempt from VAT in the UAE

Certain sectors are exempt from VAT as per FTA guidelines. For example, some real estate transactions are exempt from VAT.

Sectors that fall within VAT exemptions in the UAE include:

  • Bare land
  • Local passenger transport (including flights within the UAE)
  • Sale or rent of residential properties after the first supply
  • Supply of certain financial services

 

If you wish to stay informed about developments and fiscal news in the United Arab Emirates, you can contact us and schedule an appointment with the most suitable professional for your specific case, using the following Schedule.

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